The West Texas Rat Race: “Big Oil” Companies Racing to Ensure their Share of the Permian Basin’s Unprecedented Production of “Black Gold”

Photo of fracking operation in the Permian Basin. Image courtesy of FreightWaves.

Currently, Texas is aiming to surpass Iran and Iraq in terms of oil production. Let that sink in for a moment. If Texas was its own country, it would soon be No. 3 in the world in terms of oil production. The key to this massive amount of production is the Permian Basin—and “Big Oil” is rushing in to claim their pieces of the Permian pie.

Just last month, British Petroleum (“BP”) purchased $10.5 billion worth of oil assets in Texas. To put this in perspective, this is the largest acquisition BP has made in 20 years and is the first major investment they have entered into in the United States since the 2010 Deepwater Horizon disaster. So why would BP suddenly decide to delve back into business in the United States? The answer is quite simple, the Permian Basin is the most desired region for oil production in the United States, and perhaps even the entire world. Many in the oil and gas industry believe that the Permian Basin rivals Saudi Arabia’s Ghawar Field, the largest conventional oil field in the world.

Prior to BP’s $10.5 billion purchase, ExxonMobil (“Exxon”) made a $5.6 billion deal in January of 2017 that doubled its assets in the Permian Basin. That 2017 purchase was Exxon’s largest since 2010. The Permian Basin is encouraging “Big Oil” companies to open up their checkbooks.

However, despite more companies becoming involved in the Permian Basin and the resulting increase in production, the current infrastructure is at capacity. The Permian Basin is running out of pipeline, water, sand, buildings, and employees. These “growing pains” seem to be the only impediment to an extraordinary growth in production previously unseen in the United States. Of the infrastructure issues listed, the lack of pipelines is described as the most pressing.

New pipelines are being built but they take time, money, and, in many cases, condemnation proceedings. A big part of pipeline construction in Texas is condemnation. Pipeline companies must acquire land and easements in order to build their pipelines and oftentimes resort to condemnation in these acquisitions. This means that property owners near the Permian Basin and across Texas should brace themselves because the pipelines are coming.

Plains All American Pipeline, for instance, is building the $1.1 billion Cactus II pipeline to carry crude oil from the Permian Basin all the way to Corpus Christi. The project is set to open in the third quarter of 2019. Phillips 66 and Enbridge are building the Gray Oak Pipeline from the Permian Basin region to Corpus Christi and Houston. Gray Oak is expected to open during the second half of 2019. The surge of production in the Permian Basin made these pipelines a necessity for oil and gas companies to be able to profit off of their costly investments.

Cactus II and Gray Oak are merely two examples in a pattern of increased pipeline construction coming out of the Permian Basin. As long as production remains at these high levels, property owners between the Permian Basin and the destination cities should expect to hear the pipeline companies knocking on their doors.

Written by Graham Taylor and Kyle Baum.

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Luke Ellis and Justin Hodge are partners with Marrs Ellis & Hodge LLP. Justin heads the firm's eminent domain practice in the Houston office. Luke heads the firm's eminent domain practice in the Austin office. Luke Ellis is widely recognized as one of Texas’s top young lawyers—and one of the top lawyers of any age practicing in the area of eminent domain. Mr. Ellis has broad experience and has enjoyed success in many types of civil litigation. Justin Hodge is a trial lawyer who represents Texas landowners in condemnation, eminent-domain, and real-estate lawsuits. He represents landowners in condemnation proceedings, not the governmental authorities or private companies taking property. Mr. Hodge has handled complex condemnation and eminent-domain cases throughout the State of Texas.
If you have questions about any of the issues raised in this blog, we invite you to discuss them with us at jhodge@mehlaw.com or lellis@mehlaw.com.